Repairing Some Dents In an Image; A Rise in Defects at Toyota Puts Its Reputation at Stake

By MICHELINE MAYNARD and MARTIN FACKLER; Nick Bunkley contributed reporting for this article.

Published: August 5, 2006

The news is something no car owner wants to hear. Power steering on their hard-to-get hybrid could fail. Tires on their small pickups could bulge and possibly burst. Air bags may not inflate during a crash.

These recalls are the type that have long bedeviled American carmakers, but this time it was Toyota of Japan, long known as the cr? de la cr? in quality.

Just as Toyota appears poised to pass General Motors to become the world's largest automaker, it has a growing problem with recalls that is sullying its carefully honed image.

In the United States, Toyota's largest market, the number of vehicles recalled soared to 2.2 million last year. That was double the number of vehicles recalled in 2004, and more than 10 times the 200,000 cars it recalled in 2003, according to the National Highway Traffic Safety Administration.

In Japan, the number of recalled vehicles has jumped 41-fold since 2001, to 1.9 million last year. And because many of the recalls are for vehicles that are more than 10 years old, analysts fear that another wave of bad quality news may be in store.

The situation has alarmed Toyota's top executives and angered the Japanese government. It ordered Toyota to explain itself, which the company did in a report delivered Thursday, accompanied by the latest in a series of apologies. In it, the company promised to create a new computer database to obtain information more quickly from dealers on repairs and complaints. The police in Japan said three Toyota officials were under criminal investigation on suspicion that they concealed vehicle defects over eight years.

Inside Toyota, the spate of recalls and the criminal investigation has caused a flurry of high-level efforts to diagnose and fix the problems, which have affected its Prius hybrid, the gold standard among fuel-efficient vehicles; the Tacoma pickup; and cars in its Lexus luxury lineup.

Quality problems can befall any company, whether based in Detroit, Europe or elsewhere. This week, in fact, Ford expanded a recall of its vans, sport utility vehicles and pickup trucks because of problems with cruise control systems that were prone to catching fire.

For now, Toyota's quality issues do not seem to be damping its operations either in Japan, where it is the biggest automaker, or the United States, where Toyota passed Ford in July to rank as the No. 2 company in terms of auto sales. Nor is it affecting Toyota's net income, which climbed 39.2 percent during the second-quarter, to $3.2 billion, the company said yesterday. [Page C4.]

But executives know they cannot let the situation fester, because it ultimately threatens Toyota's ability to grow. If they fail to get their arms around the problem, they will have to pull back on the company's expansion plans, which are set to include more assembly and engine plants for the United States, as well as factories elsewhere.

At Toyota's annual executive meeting in June, its departing chairman, Hiroshi Okuda; the new chairman, Fujio Cho; and its chief executive, Katsuaki Watanabe, all vowed to managers that the quality issue would be addressed, according to a senior Toyota executive who attended the meeting.

''The quality issue is a big concern. They're embarrassed about it,'' said the executive, who insisted on anonymity because the meeting was private.

''You think about Toyota, and quality is in our DNA,'' he continued. ''We are concerned about looking like the rest of the pack. The market is forgiving because of our long reputation, but how long will they be forgiving?''

Interviews with car owners and dealers show they have some latitude.

Bruce Wachtell, 71, bought a 2006 Prius in March after years of driving a Toyota Tacoma pickup without any problems.

''It's never seen a dealer,'' he said of the truck.

Mr. Wachtell, a retired ship's radio officer living in Stinson Beach, Calif., began buying foreign cars after growing frustrated with the quality of American-made vehicles. That sentiment is confirmed, he said, whenever he peruses repair records for various brands in Consumer Reports, and he has not lost any confidence in Toyota because of the recent recalls.

''I think recalls are just simply a function of the fact that no design is perfect,'' he said.

Mr. Wachtell called his dealership after discovering recall notices that included the 2006 Prius on the Internet, but he was told his vehicle was not among those affected. Both the Tacoma and the Prius, however, are among the vehicles in Toyota's recent recalls.

At Bredemann Toyota in Park Ridge, Ill., Don Ziemke, the general sales manager, said only a few shoppers had asked about the implications of the recalls. Other dealers said they had prepared their employees to answer such questions, but that no one had even brought up the topic.

''Toyota's longevity and reliability has always been a strong suit,'' Mr. Ziemke said. ''That kind of takes a hit when there are recalls out there.''

Still, he said, ''It's against the grain as far as what Toyota has provided its dealer body and customers in the past.''

The primary reason for the recalls is Toyota's overloaded engineering staff, say company executives and industry analysts.

Despite its global expansion during the 1990's, it failed to hire enough engineers to keep up with production increases.